Monday, May 21, 2007

Why wait for Clementi and the Legal Services Act? It's already happening. The Lawyer reported today that Slater & Gordon, a PI firm based throughout Australia floated on the stockmarket. Over 8 million shares were sold, the market closing at AUS$1.4 on an issue price of AUS$1. It's hardly in the Google IPO stratosphere but still represents a huge change on the ancien regime. Legal Soapbox has written an insightful piece on the potential conflicts for lawyers that arise with the IPO.

No other law firm, to my knowledge, has done this. Once the Legal Services Act is enacted in the UK, then it will be possible for English law firms to do this too. However, do see Ideoblog on "Blackstone and the publicly traded law firm".

So what does it mean to the legal profession and its client base? The first tension is that between professionalism and business. Professionalism speaks of disinterestedness, community orientation, ethically minded conduct, duties to court (as Legal Soapbox reaffirms), all of which conspire to be antithetical to business. The real question for analysts is to what extent are these real tenets as opposed to shibboleths produced to create an artificial impression? It's difficult to know, but these days any lawyer that hewed merely to these values wouldn't last long.

Law is a business. And that's not just the case for corporate law firms, but also those that survive on legal aid cases. Let me exemplify this: today I interviewed a barrister's clerk in a set of chambers that does a range of work including a heavy dose of legal aid work. He makes sure that the lawyers who brief his barristers include travel expenses with the delivery of the brief so that his barristers aren't out of pocket when travelling to suburban courts. It may be simple and mundane but the clerk knows that he's got to watch his cash flow. It's easy for solicitors to go out of business and leave counsel with no chance of collecting their fees. That doesn't happen in the elite, of course.

Lawyers have financial targets and a range of incentives (and penalties) to help meet them. Even the new legal aid regime post-Carter will be organized around more severe financial terms than before. To see how dire the situation can become, have a look at Richard Abel's article, "Practicing Immigration Law in Filene's Basement" in the North Carolina Law Review. Here incompetent lawyers recklessly misrepresent their clients for a paltry fee and then dump them. It helps too if the clients can't speak English.

But perhaps the key tenet of professionalism is incarnated in the ideal of self-regulation: the ability to keep one's own house in order. Unfortunately the English legal profession has not kept on top of this. The legal services ombudsman has reported a rising caseload of complaints about lawyers from the public year on year. Neither the Bar Council nor the Law Society have managed to reduce the complaint load. And the result is that government now believes external regulation must take over from self-regulation. This will be encapsulated in the Legal Service Act.

The final push has come from the competition authorities who see lawyers' arrangements as constitution restrictive practices not in the public interest. With their focus on consumer's rights, lawyers can no longer rely on traditional modes of working.

Given these moves, it's no wonder that law firms have begun to look for more entrepreneurial ways of organizing and financing themselves. What used to be a direct bargain between lawyer and client is now mediated by the state. (And I am not discussing the changes in internal organization with permanent associates, salaried partners, consultants, etc. For that see here.)

But herein lies the essential paradox of the matter: lawyers established themselves on the principle of independence and being the guardians of individuals against the might of the state. The state is now co-opting them in various ways. First, there is the direct regulation of the legal profession. Second, more selective funding of state legal services. And finally, it is easing (pushing) the way for lawyers to move away from traditional forms of organization enshrined with personal liability into more technocratic and bureaucratic forms that will no longer be able to claim the ancient rights and privileges, as in, for example, attorney-client privilege.

It's no surprise. The state has intensively increased its surveillance of the populace, with the excuse of terrorism, so it must ensure that its "struggle" isn't compromised by groups who are opposed to its aims and stand up for human rights. Promoting the business model is actually one way of subverting these aims, unless human rights becomes big business.

Tuesday, May 08, 2007

The seasonal rounds of salary rises for law firm associates are flooding in. The UK City firms are paying newly-qualifieds around £64,000, with one-year qualifieds getting between £66,000 and £70,000. US firms are paying more in London: Shearman & Sterling are offering £75,000 and White & Case are paying £76,000. By contrast, in New York, first year associates are now being offered as much as $160,000, often with more generous bonuses than their London counterparts.

While these numbers may seem high to some (well, to academics they do), they essentially reflect the supply and demand for "grinders" in the legal factory. Law firms consist of three basic categories of lawyer: finders (the rainmakers who bring in the business); minders (those who supervise the work and look after the "finders'" clients); and grinders (the fodder straight out of law school who are the grunts). If you succeed as a lawyer, you will rise up through these ranks--partner and associates cut across these--to gain kudos, cash and clout. This assumes a transparency in the system so that all the participants know what's in for them.

It's no surprise that opacity rather than transparency rules, especially in London. And the big law firms do well by this. By spreading confusion and mystifying the processes, most associates don't have a clue. They work very long hours--you better hit 2,200 billable hours a year--without thinking what they are doing. The senior partner of Clifford Chance once said that the relentless mill of transactions pretty soon induced burnout in most except the for the strong.

Most London associates have no idea about how to make partner (or even how law firms operate), that is what to do, when to expect it and so forth. Disillusionment sets in early for many these day and so they opt to go inhouse, an increasingly common move. At least in the US there is more information and knowledge of the process, and certainly it is studied more than in London.

Looking at salary differentials, one would think there would be a mass migration from UK to US law firms in London. But there isn't. Again, myth and mystification have a lot to do with this. In part it is due to London law firms having created a class system of law firms that reflects the English class system. So a firm like Slaughter and May sits at the top while other firms try to rise to their lofty heights. Some firms like Linklaters try to appear classless, but aren't. And of course our law schools are similarly situated, which leads to the question: how many good prospects are missed because firms won't look at entire categories of law schools? For all their sophistication, they often make simplistic assumptions, but that's another topic.

This class system is transmitted to law students and associates with some force. How, when, and why I don't know. The only comparison I can think of is to young kids learning about sex from their schoolmates and getting it horribly wrong. It places American law firms in an anomalous situation because they don't neatly fit with the English firms, even though their hierarchies are as fixed as ours. To move to a New York or LA firm is to abandon one's roots with the fear that there may be no way back. The lure of higher salaries doesn't always compensate. Although interestingly in the case of Magic Circle partners that particular trait of American firms has become enticingly attractive.

Perhaps with London becoming the global financial centre du jour over New York, there will be less mystery around these things. Maybe the American law firms will really shake up the pack as they do in New York from time to time. Personally, I think all law students, whether in a law degree or doing the CPE, should take a compulsory course in the legal profession to enable them to make better decisions about their careers. At the moment they are like lambs going to a very expensive abattoir.